The President’s Perfect Storm: QE3 and …?

Buried among the foreign policy headlines last week was the news that Ben Bernanke has decided to press ahead with quantitative easing. For those of you keeping track, this is round three, and it sparked a second US credit rating downgrade. Bernanke all but admitted that his previous efforts weren’t working and that the economy wasn’t bouncing back (has anyone told the president this, or was he too busy campaigning?), and that this round was geared towards lowering the unemployment rate.

Regardless of the fact that we’re inside 60 days to a presidential election and Mitt Romney has said that he will not renew Bernanke’s term as chairman of the Fed in January 2014, Bernanke insists that QE3 had no political motivation behind it. Of course.

Quick economics refresher: QE is basically when the Fed floods the market with money. In this case, they’re buying up $40 BILLION of mortgage securities. If there is more money in the market, then (hopefully) everyone else is encouraged to spend their money, companies are encouraged to hire, and interest rates stay low. These should all be good things—except for the seedy underbelly of QE that no one ever wants to talk about. When there’s more money in the market, your money is inherently worth less.

The timing, no matter what Mr. Bernanke says, is suspect. The economy might—and probably will—surge, just in time for the November election, which could be bad news for Mr. Romney. Americans are hesitant to vote incumbents out, unless something drastic, like the economy or maybe a disastrous foreign policy, just forces them to do so. If the economy improves enough, President Obama could retain his office.

If the economy improves due to QE3, it will only be temporary. Now we get to that nasty inflation aspect of quantitative easing. When your money is worth less, it means you have less purchasing power. It means you’re working the same hours, but getting paid less, and you’re paying more for groceries and fuel, which are pretty much necessities of life. We’ve gone through two other rounds of quantitative easing without horrible results (or any great improvement). Why could the inflation round be worse with this one than with previous ones?

For one, our disastrous Middle Eastern foreign policy continues to deteriorate. The maps tracking the riots get worse and worse by the day. The administration is supposedly in the middle of negotiations to release the Blind Sheikh to Egypt in an effort to bribe the Muslim Brotherhood into good behavior. Iran is inching closer and closer every day to nuclear weapons and our lone reliable ally in the region is being pushed to the brink of war. If the Middle East erupts into a war, fuel prices will skyrocket—and inflation will not make those prices any easier to bear.

Even worse than just paying more to fuel up your car, heating/electricity prices will probably go up as well. This is one of those costs that (like fuel and food) will hit poorer families the hardest. Middle class families can tighten their belts just a little more if they have to, but this could very well push lower middle class families back into the lower class financially.

As if paying more to drive to work and heat your house wasn’t bad enough, the Midwest has been in a record setting drought this year. Corn, soybean and wheat prices were already anticipated to rise—and as they go up, expect beef, poultry, bread, milk and other staples to rise with them. The lingering question now is how much of an effect inflation could have on these price increases.

This winter could very well be President Obama’s perfect storm. A Middle Eastern crisis could precipitate (at the very least) fuel price increases, or trigger World War III. Add to that a crisis in Asia, where China and Japan are bickering over uninhabited islands. We are obligated by treaty to defend Japan if China attacks, and if China does bother to attack, I doubt they’ll just leave Taiwan (another ally) alone.

But then on top of the foreign policy missteps, we have a sputtering economy, a malingering unemployment rate hovering at 8%, a Federal Reserve chairman who believes the economy is on the verge of recession despite what the president says, a third round of quantitative easing that could trigger runaway inflation, sequestration that could trigger harmful military cuts, and a looming deficit crisis.

If that paragraph doesn’t keep you awake at night, I don’t know what will. Imagine March or April 2012, with President Obama at the helm, at least one war raging, a 10% unemployment rate, a reduced military, and a president unencumbered by having to face reelection and getting at least one (possibly two) Supreme Court nominees. Perhaps, as some have argued, Mitt Romney won’t be all that much better. But having seen Obama over the last four years, and having watched our president golf and fundraise and campaign while crises brewed all around us, I can’t imagine he would be that much worse.

I think Clint Eastwood said it best. We own this country — and when someone doesn’t do the job that we hired them to do, we get rid of them. Barack Obama has not led this country. Domestically and internationally, we are not better off than we were four years ago. It’s time for someone else to lead.

Image: courtesy of Simsala111

About the author: Michelle Zook

A native Texan currently living it up in Utah, Michelle served five years in the Air Force as an Air Battle Manager, attaining the rank of captain. These days, she's pursuing a MA Public Policy at Liberty University, learning the ropes as a military spouse, chasing two little ones around, staying caught up on the news, and trying not to meddle in her husband's career. She's a firm believer in states' rights, the Second Amendment and individual liberties.